Nationwide said house prices rose by 2.8 per cent last month, the highest monthly increase since June 1993.

The jump put annual house price inflation for the year to the end of September at 14.6 per cent, and increased the average price of a property to £92,432.

But the society said despite the strong gains it was leaving its forecast for house price growth for 2001 unchanged at 11 per cent due to the high degree of uncertainty following the terrorist strike.

Alex Bannister, Nationwide's group economist, said: "The tragic events in the US on September 11 will have an impact on the housing market, but much depends on the outlook for the US economy and its impact on economies across the world including the UK.

"It is possible that the housing market may slow more quickly and recover more slowly than we originally envisaged, but in reality it is too early to forecast with any confidence."

Nationwide said that while events in the US had increased the risk of recession there, the key issue was whether US consumers remained confident enough to keep the economy going.

The society said a recession in the US would knock prospects for the UK economy and housing market, with London feeling the impact first and most significantly.

But it added that while house price growth in London looked set to reduce sharply, it would be some time before the slowdown was seen as people were likely to continue moving money away from equities into safer investments such as

property.

Nationwide said it did not expect house prices in the capital to fall, and mortgage rates would have to rise by 7.5 per cent for Londoners borrowing three times their income to come under the same pressure as before the last housing market recession.

For the UK overall Mr Bannister said: "While house price growth will reduce significantly next year, we still view the prospect of prices falling as extremely slim, even if economic conditions are worse than we expect, because affordability in much of the country remains good."

He added that sharp falls in equity markets and concern over job security could reduce consumer confidence, causing people to rein back their spending and borrowing plans.